Oracles and Your Distributed Blockchain Business Designs
There is a term floating around the blockchain world that is worth discussing due to its impact on business capabilities enabled by blockchain. The term is Oracle.
An oracle, in the context of blockchain and smart contracts, is a software broker that connects occurrences of information in the real world to a blockchain where that information is to be used by smart contracts.
An oracle, in the context of blockchain and smart contracts, is a software broker that connects occurrences of information in the real world to a blockchain where that information is to be used by smart contracts.
Types of Oracles and Their Uses
There are many types of Oracles, Oracles that obtain data from both real world software and hardware sources. Oracles can be inbound (they obtain data) and outbound (they send data) from blockchain and smart contract systems.
Oracles find and verify real world occurrences of data and provide this information to a blockchain to be used by smart contracts.
As we’ve discussed before, operational and relationship trust in the most important business capability realized by blockchain, so when you’re obtaining data from external sources, the key to success is do you trust the source? There are a few ways that Oracles ensure trust, trust can be obtained by consensus where a smart contract Oracle obtains data from multiple sources and determines trust by algorithmic consensus, or when there aren’t multiple sources, the smart contract Oracle obtains data from the single source, which must be “trusted” by employing a tamper-proof approach to ensure that the data is not manipulated.
With third party services not being a part of the blockchain consensus mechanism, the challenge with employing oracles is trust. Regardless if a website, database, or sensor, varying trusted computing techniques will be used to solve these issues. ChainLink, for example, the Ethereum Smart Contract connector is an excellent example of an Oracle. Regardless of the tech or the provider, the challenge isn’t the technology, but how to define trust in external systems so that information sources can be integrated into the evolving blockchain ecosystem. Varying trusted computing techniques must and will be used as a way of solving these issues. Oracalize and Town Crier are using the TLSNotary based proof and the Intel Software Guard Extensions (SGX) proof respectively. These are but just a few examples of proof based Oracle approaches that we will be encountering in the years ahead.
Oracles and Business Design
Back to the point at hand, in the business design of decentralized, peer-to-peer blockchain business models, incorporating existing data sources into your design is a crucial and necessary piece of your strategy. As “transaction costs”, the cost of working with or exchanging value with peers continues to decrease at a rapid rate, for which, blockchain ultimately holds the most responsibility, businesses will move from centralized command-and-control designs where the vast majority of data, services, and material needed for the business are created or amassed within the walls of the corporation, to decentralized services providers where value doesn’t come from what you control but the value of the service you provide. From here, one must look at transactional interaction with every source in the global ecosystem as input for the creation of value in tomorrow’s businesses.
In the decentralized economy, the most valuable companies will no longer be those that control as much as they can ranging from data to intellectual property, but those that integrate data and IP from other valuable service providers to produce net-new and net-greater value to this new global, peer based network.
In the decentralized economy, the most valuable companies will no longer be those that control as much as they can ranging from data to intellectual property, but those that integrate data and IP from other valuable service providers to produce net-new and net-greater value to this new global, peer based network.
Now What?
When designing new blockchain based businesses, there is much to consider. We will continue to discuss these considerations in upcoming posts. The consideration here is that when implementing a blockchain based business model, locating the trusted source of data, gaining access to it for your business and ensuring that your business model doesn’t replicate the hoarding mindset of centralized business will be key to both the scalability of your blockchain business and the growth of the blockchain economy.
Originally published at https://www.linkedin.com on September 5, 2017.
